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What's Ahead For The DI Market

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Disability insurers and producers have spent the past few years working to explain why income protection matters.

Today, “it does seem as if employers are more aware of it,” says Carol Tavella, a senior manager at Smart Business Advisory and Consulting L.L.C., Devon, Pa.

Robert Taylor, president of the Council for Disability Awareness, Portland, Maine, says he hopes the increased awareness will buffer the group and individual disability markets against the economic downturn.

“Disability doesn’t go on hold or take a holiday” because of a slump, Taylor says. During a slump, “the need for disability protection may be even more pronounced.”

In the health insurance market, almost everyone understands the need for the product, but cost is a major concern.

In the disability market, experts say, cost tends to be a much smaller concern.

During the first half of 2008, for example, the average premium for group long-term disability insurance was just $212 per insured per year, according to JHA, Portland, Maine. The average group LTD price was actually 6% lower than the average for the first half of 2007, JHA says.

In recent years, JHA marketing experts have told disability insurers that lack of awareness of disability and disability insurance has been limiting their opportunities to expand.

JHA executives screened a video showing a series of Portland residents expressing confusion about the product.

For the past 2 years, the Life and Health Insurance Foundation for Education, Arlington, Va., has responded to that confusion by organizing a disability insurance awareness month each year.

Aflac Inc., Columbus, Ga., has put the Aflac Duck to work marketing accident insurance related products, and other carriers have responded to the LIFE disability month program and the Aflac Duck by ramping up disability insurance outreach efforts.

The campaigns may be paying off.

When researchers surveyed residents of the United States and other countries about a year ago for a unit of AXA S.A., Paris, they found that 73% of the U.S. residents reported thinking about the risk of permanent disability, compared with an average of 59% of the survey participants in the other countries studied.

Possibly as a result, total combined group short-term and long-term disability premium revenue increased 6% between the first half of 2007 and the first half of 2008, to $6.7 billion, according to JHA.

Here is a review of some of the other forces that could shape the market in the coming year.

1. The weak economy may hit employee counts and benefits packages hard and lead to an increase in claims.

The total number of U.S. adults ages 16 and older with civilian jobs fell 1.7% between November 2007 and November 2008, to 145 million.

When the economy softens, “you always see an impact on people’s financial security,” Taylor says. The slump could affect disability insurance sales and carriers’ efforts to retain existing cases, he adds.

Executives at Unum Group Corp., Chattanooga, Tenn., said in November at the company’s investor day conference that they are assuming the overall unemployment level could rise to 8% or higher in 2009.

Unum cares more about the unemployment rate for the pool of people that it insures–which includes many government workers and health care workers–and less about the overall rate, executives said.

But the company’s assumption is that “there is going to be potentially a little bit of pressure on the top line,” Unum President Thomas Watjen said during an investor day presentation. The company is assuming that a weak economy may lead to an increase in claims, even though it has not yet noticed any such trend, he said.

But Watjen noted that the recession also could lead to opportunities. “There are companies that I think are questioning their commitment to this business,” he said. “We’re seeing a lot of business opportunities coming our way. We’re going to be there for the long term.”

2. Awareness of the risk of disability may continue to sink in.

Insurers’ ad campaigns, the growing number of Iraq war veterans who are returning to civilian life with disabilities, and the prominence of New York Gov. David Paterson, who is legally blind, could increase workers’ interest in income protection, in spite of the weak economy.

3. Employers may continue to ask employees to share more of the responsibility for paying for coverage.

“We have not seen a lot of employers looking at discontinuing” disability coverage, Tavella says. If anything, she adds, employers and employees are becoming more aware of importance of disability coverage, but using voluntary, employee-paid insurance to fill coverage gaps.

4. Retirement plans and home equity may be less helpful sources of emergency financial relief.

A few years ago, some people had enough savings and other assets to survive for awhile without any income coming in.

Today, “most people don’t have the backstops they used to have,” Taylor says.

Market turmoil has turned many 401(k) plans into “200.5(k) plans”–or “100.25(k) plans” and eroded the equity homeowners have built up in their homes.

5. Employers will turn to help from disability insurers and benefits producers with handling absenteeism and employee leaves.

Interest in absence management is growing because “there’s been much better use of analytics and benchmarking,” Tavella says.

A major employer group, the National Business Group on Health, Washington, has attracted attention to the topic by setting up its own benchmarking program, she says.

Tracking and managing employee absences can be expensive, time-consuming and legally complicated, and many employers “understand that absences weigh on productivity,” says Michael Fradkin, vice president of disability product management at MetLife Inc., New York.

MetLife expects to see strong absence management services demand at all employers in 2009, Fradkin says.

Congress also has changed the rules for government-mandated leave programs, by updating the Family and Medical Leave Act and other laws, and that should increase employer interest in getting leave compliance assistance, Tavella and Fradkin predict.

6. The Obama administration may add carrots, sticks and teeth to return-to-work programs.

The campaign of President-elect Barack Obama noted while he was campaigning that Obama is a civil rights lawyer who believes in vigorous efforts to fund efforts to enforce the federal laws that protect workers with disabilities.

Obama also wants to provide more resources for private employers that hire people with disabilities, encourage private employers to use existing tax benefits to hire more workers with disabilities, support small business owners with disabilities, and speed up the Social Security Administration’s Social Security Disability Insurance claim determination process.

7. Behavioral health may get more attention.

Congress included a new mental health benefits parity provision in the bill that created the Troubled Asset Relief Program, and large employers have found that having committees reduce the workload of employees who are genuinely overloaded can help cut the number of stress-related health and disability claims, Tavella says.